Money management 101

Post-secondary students urged to seek financial advice before applying for loans

Jordan Smith, a recent graduate of Memorial University in St. John’s, takes his job hunt to the streets of Halifax July 14, 2009. Their goal is to leave with a diploma or degree, but many graduates find themselves saddled with significant financial burden once their studies have ended. — Photo by The Canadian Press

Many post-secondary students are graduating with a heavy debtload along with their degree, but financial experts say that shouldn’t scare people away from going to school.

They say there are ways for students to manage their money, whether they’re already facing school debt or are preparing to go into debt by applying for student loans.

Jeffrey Schwartz, executive director at the not-for-profit organization Consolidated Credit Counseling Services of Canada, Inc., says the first problem and solution is that students need more financial education.

“Students need to develop good money budgeting skills and they need to become financially literate,” says Schwartz. “Often that’s troublesome because they haven’t had any courses in financial management up until this point.”

Consolidated Credit assists students and families with financial crisis and debt management problems through counselling and debt consolidation.

Before students even think about applying for student loans, Schwartz recommends students and families decide if going away for school is a good economical decision.

Swartz says many students want to study abroad for the experience, but they have to understand the savings that can be had by studying in their home town.

“If there’s huge savings at home, that means likely you’re not going to have the same level of debt that’s hanging over your head after having graduated and heading into the workforce,” he says.

Once students have chosen a university and decide they require financial assistance, Schwartz recommends comparison shopping for student loans just as someone would shop for the best cellphone plan.

“You really need to shop around and try to find the student loan for you,” he says. “Assess all the different options that are available.”

Schwartz says students should also keep in mind how much money they expect to earn once they enter the workforce in relation to the amount of debt they will have to pay back.

A recent BMO survey suggests about half of post-secondary students are taking on debt for school, and 58 per cent of those with loans expect to owe upwards of $20,000 when they finish school.

One-fifth, or 21 per cent of students, will graduate with debt double that amount.

Having a realistic estimate will help students manage their debt, making it easier to pay off in the long run.

Schwartz says a good rule of thumb is that students should spend no more than eight to 10 per cent of their income paying back loans.

Students can also look to their post-secondary institution for advice.

“I do quite a bit of budgeting layouts for students,” says Pamela Swinimer, assistant registrar of financial aid at Dalhousie University in Halifax. “I’ll get them to create a budget, we’ll sit down and go through it and figure out where the shortfall is.”

Swinimer agrees students should shop around for the best interest rate and repayment system program for loans, but also take other steps to keep their finances in order.

She and Schwartz suggest students take on part-time jobs to help meet budgetary shortfalls.

“There are opportunities for people to take on additional part-time work (on campus) to help not only stop spending but at the same time, have some money put aside so you can pay for your education,” Schwartz said.

For some, it could be as simple as skipping that hot breakfast at the fast food joint across the street.

“How often are you going to the coffee shop just to pick up a coffee and a bagel?” Schwartz questions.

That extra $10 spent on food that can be brought from home can go toward paying off a debt or a students’ savings, he says.

If you do feel you’re getting into financial trouble, getting financial advice is your best bet.

“Seek help early as opposed to later,” says Schwartz. “Try and address the problem as soon as you can.”

Jordan Smith, a recent graduate of Memorial University in St. John’s, takes his job hunt to the streets of Halifax July 14, 2009. Their goal is to leave with a diploma or degree, but many graduates find themselves saddled with significant financial burden once their studies have ended. — Photo by The Canadian Press

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a business man

September 13, 2012 - 07:34

Actually, the shareholders of the banks win too, so that I good for me. I don't think student loans should be tax free. Frankly, when I went to business school and law school, I had to borrow money from the bank and I paid interest. Now, I own shares in some of the big banks and it is my turn to reap the rewards of the interest charged on student loans.

So you did business and law? Due to your molecular makeup, you are prone to financial survival of the fittest (I will keep my opinions on your profession to myself but I expect you are not working for a non-profit organization)....and good for you that you can afford to pay back your loans with interest and buy some stock. Keep in mind that you are probably in the 1% of the top earners.
I guess it goes back to the first princples of capitalism, profits!!! And as a shareholder you are OK with a bank making a profit of $20B per year, especially because you get dividends. I expect, but am not sure, that very little profit comes from strudent loans but maybe its the interest from the student loans that are needed to pay the CEO his/her $20M a year salary.
To get to the bottom of this would require a bottle of rum and some fish cakes.
Cheers

a business man

September 14, 2012 - 07:20

I am not in the top 1% of earners. I wish I was, but I am probably in the top 25%-30 of earners. That said, I am working very hard to make more and more money, so maybe one day I will get to the top 1%, or maybe the top 10%. The point is I have more than enough money to retire, but I still desire to earn more and more money for the future generations of my family. Your opinion of my profession means almost as little to me as newfoundland, so you can keep it to yourself. In any case, every single action that I take is driven by profits. And no matter how much profit there is to make, there is always a way to make more profits and it is my job to find that, either through strategic means (my business background) or by legal means (my law background). I am super-duper happy with a bank making a profit of $20B per year primarily because I get dividends. I really don't care where the profits come from, but I do believe that the banks and the shareholders have a right to profit from student loans and ANY loans that are issued. As far as I can concerned, the CEO has earned his/her $20M salary by running such a successful bank. Anyway, life is about survival of the fittest, and all my decisions are about profit.

I hate banks

September 13, 2012 - 00:02

The only one that wins here is the financial institution/bank. A $30,000 loan at an annual interest rate of 5% paid back over 10 years is a monthly payment of $318 per month. Now, with a salary of $30,000 per year and applying Schwartz's recommendation, that would permit around $185 per month for loan payment depending if you use 9% of gross salary or take home after taxes.
At that rate, it would take 14 years to pay just the principle. Better not have that expensive coffee!!!! Where's the logic here?
Student loans should be tax-free....no government or public institution should be making money from educating our children for the future. Don't get me wrong, they still have to pay the money back....it's still a loan but it should be interest free.